Saturday, January 3, 2015

Year-End Reforms from SEBI

We wish our readers a very happy 2015!

The end of 2014 was marked by a flurry of announcements from SEBI, some of which are briefly discussed in this post.

Re-Classification of Promoters as Public

The concept of “promoters” is quite significant in the Indian context as it is relevant for various purposes. While the existing SEBI regulations define a “promoter”, the circumstances are not entirely clear as to when a person would cease to be a promoter. This question has arisen in recent circumstances when promoters have sought to be re-classified as public shareholders in order to meet the minimum public float norms. Now, SEBI has come up with a discussion paper, which details the circumstances and conditions upon which promoters may re-classify themselves as public shareholders.

SEBI’s effort in the paper is to make the circumstances for transition as clear and objective as possible. While this is desirable, it is likely that cases would arise where all of the requirements may not be satisfied in a given case in a technical sense. Whether SEBI would be able to exercise any discretion to dispense with these requirements in specific cases is an open question.

Municipal Bonds

While the issue of debt securities by municipalities and other local authorities are quite common in some jurisdictions, this mode of raising finance is less utilized in the Indian context. Perhaps this can also be attributable to lack of a clear regime thereon. SEBI has therefore issued another discussion paper proposing a regulatory framework for the issuance of debt securities by municipal authorities. While this is a welcome move, there could be other areas of the law that might have to be addressed before this regime can be successful. For example, clarity eludes the question of a bankruptcy regime for municipal authorities in India. This could be an important consideration for debt investors.

Expansion of Investment Under FVCI

SEBI has issued amendments to the SEBI (Foreign Venture Capital Investors) Regulations, 2000, which will now allow foreign venture capital investors (FVCIs) to invest in core investment companies (CICs) in the infrastructure sector. This amendment became necessary (and was based on recommendations received through a consultation process) because CICs generally came within the scope of non-banking finance companies (NBFCs) in which FVCI investment is disallowed.

Depository Participants

SEBI has also eased the process for registration of depository participants by altering the erstwhile two-stage registration process to a single registration.

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